How To Avoid A Court Ordered Creditor Judgment Due To Hardship

If you have gotten behind on payments with a creditor, and you have not been able to reach a repayment agreement, the company may take you to court and get a judgment against you for the amount owed. A judgment is a serious mark against your credit record and one you want to avoid at all costs. If you can prove that you are unable to make payments due to a legitimate hardship, the courts may be able to offer you some sort of relief.

What is Considered a Hardship?

A legitimate hardship is a situation beyond your control which makes it impossible for you to meet your credit obligations. Valid hardship reasons include

  • Military Service
  • Loss of Income
  • Divorce/Separation
  • Illness and Medical Expenses
  • Death of a Family Member or Co-Borrower
  • Other Legal Expenses

The Home Affordable Mortgage Program (HAMP) has its own list of acceptable hardships that it uses to determine whether you qualify for a mortgage loan modification.

Writing a Hardship Letter

The first thing you should do if you experience a hardship is to write a hardship letter to the creditor. Send it certified mail, return receipt requested to the same address where you usually send your payments. This letter is essential to prove to the court that you have made a good faith effort to negotiate with your creditor.

Bring Proof of Your Hardship to Court

It is your job to prove that your hardship exists, and how it affects your ability to pay. Bring any proof of job or income loss, legal papers, medical records, witnesses or other proof to present to the court in your defense against the judgment.

Ask the Court for a Renegotiation of the Debt

You have proven good faith to the court by showing your attempts to work with the creditor and by proving your hardship. The court will take this all into consideration when you request a renegotiation or restructuring of your debt. Depending on the type of debt, the court may order a mediation with the creditor or take direct actions such as reducing your payments, reducing your interest or allowing you to pay interest only until the hardship is resolved. Usually, the court will withhold judgment if its conditions are met. You must comply with the court's requirements to prevent the judgment from being entered.

Hardship is a legitimate reason to renegotiate a debt. If all attempts have failed and you are facing a court-ordered judgment, there are steps you can take to have the court intervene on your behalf instead of issuing a judgment against you. If the debt is large, such as a mortgage, it is beneficial to speak to an attorney who may be able to provide other solutions.